Top ITT executives agree to fines, ban from top corporate jobs in SEC settlement

A lawsuit by former ITT students shows what it was like to attend the for-profit college chain that went bankrupt in September. Students complained about predatory lending practices, costly degrees and trouble finding jobs. (Dwight Adams/IndyStar)
Dwight Adams/IndyStar

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Shuttered ITT Tech auctioned the office furniture and equipment from its Carmel headquarters after the company went out of business.(Photo11: Matt Kryger/IndyStar)Buy Photo

The top executives of the defunct Carmel company that operated ITT Technical Institute have settled fraud charges with the Securities and Exchange Commission.

Former CEO Kevin Modany will pay $200,000 and former Chief Financial Officer Daniel Fitzpatrick will pay $100,000 to resolve allegations that they concealed ITT Educational Services' worsening financial condition from investors in the years leading up to the company's collapse.

The SEC alleged Modany and Fitzpatrick failed to disclose that ITT was on the hook for mounting student loans that the company had guaranteed. The company's stock price fell by two-thirds in 2014 as ITT revealed tens of millions of dollars in losses on those loans, according to the SEC.

Neither Modany nor Fitzpatrick admitted wrongdoing, but they agreed to penalties and a five-year ban on serving as officers or directors of public companies.

The former executives settled their cases ahead of a trial that was scheduled to start Monday. Modany said he was unavailable to comment. Fredric Firestone, an attorney representing Fitzpatrick, said his client is "pleased to put this matter behind him."

For Modany, the settlement with the SEC resolves one legal matter as another escalates.

Deborah Caruso, the bankruptcy trustee representing ITT's debtors, last month filed a $250 million lawsuit against Modany and eight former ITT board directors. The lawsuit alleges Modany steered ITT into financial peril as part of a focus on maximizing his severance pay and future career prospects. The board failed to rein him in, according to the suit.

Modany received total compensation of $1.4 million in 2015; $3.2 million in 2014 and $3 million in 2013.

ITT in September 2016 filed for bankruptcy and closed all of its campuses under pressure from the federal government, displacing 40,000 students and 8,000 employees. Many students, carrying piles of student loans and credits that are difficult to transfer, have struggled to return to school.

Modany worked as CEO of ITT from April 2007 until the company closed. He is seeking up to $5 million in severance through the bankruptcy process, which is slogging through court.

In addition to the SEC charges, which were filed in May 2015, ITT was the subject of probes from about 20 state attorneys general over a litany of allegations regarding the school's recruitment tactics and academic offerings. The SEC's settlement is drawing criticism from some people who say ITT's former executives are getting off with a slap on the wrist.

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“This sweetheart deal for ITT executives is yet another injustice for ITT students," Toby Merrill, the director of the Project on Predatory Student Lending, said in a statement. "While executives were handed a gift by the SEC, defrauded students are left fighting an actively hostile government that refuses to acknowledge the harm these corrupt executives inflicted on them."

But Stephanie Avakian, co-director of the SEC’s Division of Enforcement, characterized the settlement as a win.

“Holding individuals accountable — particularly senior executives — is a critical focus of our enforcement program,” Avakian said. “These settlements, entered into on the eve of trial after years of litigation, reflect our commitment to this accountability.”

Call IndyStar reporter James Briggs at 317-444-6307. Follow him on Twitter: @JamesEBriggs.